B.1.3.1.3 Policy Considerations for Issuing GO Bondsb-1-3-1-3-policy-considerations-for-issuing-go-bonds.xhtml#footnote-cdiac-california-debt-issuance-primer-2006-
ADVANTAGES. Among bond types, GO bonds have historically provided issuers with the lowest borrowing costs because the broad security pledge yields the highest possible bond rating and widest investor acceptance. A reserve fund is usually not required (or even permitted) for GO bonds, leaving more bond proceeds for project purposes (or keeping the bond par to the minimum necessary). Many financing terms are dictated by statute, often allowing the legal documentation to be less complex than for other types of bond issues. Lastly, local GO bond debt service is paid from property tax proceeds, not the district’s operating funds.
Recent legislation has strengthened the security pledge for repayment of GO bonds issued by California public agencies and backed by ad valorem property taxes. SB 222 (Chapter 78, Statutes of 2015) which went into effect on January 1, 2016, requires all local agencies (including school districts) issuing GO bonds to place a statutory lien on all property tax revenues derived from taxes levied to pay debt service on the bonds. Creating a first lien priority for GO bonds issued by local agencies, SB 222 provides more protections for GO bond investors in the event that the local agency files for bankruptcy. Strengthening California’s local agency GO bonds allows these agencies to potentially reduce their financing costs.
DISADVANTAGES. Districts may find some of the legal and procedural requirements of GO bonds to be disadvantageous, if not insurmountable. They include:
- Voter Approval Required. Voter approval (Proposition 46 requires twothirds; Proposition 39 requires 55%) can be difficult to obtain. Further, no taxpayer funds may be used to support the bond measure campaign.
- Timing Requirement. At least 88 days is required for a school district to call an election. Additional time is needed to certify the election results before the local agency may even begin proceedings to authorize the debt issue.
- General Fund Cost. Regardless of the outcome of the election, the district’s general fund will have to bear the cost of holding the election.202